The paper "Free Market vs Pro-Regulation Perspectives" is a perfect example of marketing coursework. The free-market perspective posits that accounting information should be viewed as any other commodity that is influenced by the forces of demand and supply and (Belkaoui, 86). It is assumed that market forces will eventually create an optimal quantity of information about the business organization. Therefore, free-market proponents argue that there should be no regulation of accounting reporting. The free market theory was supported by Smith and Warner (1979), and Watts and Zimmerman (1979) (Belkaoui, 81).
It is based on the rationale that the market provides private economic incentives that force managers to report accounting information. Free market proponents argue that the market can provide adequate incentive to organization to entice them to give out reliable financial information. One of the incentives is the fact that the operating costs are kept at minimal (Belkaoui, 81). Organizations only have to provide information to those individuals who demand it and not to everyone. Minimizing costs is in the interest of shareholders as it serves to maximize their wealth. The proponents argue that users who desire to manipulate the market are the ones who demand accounting information most.
Secondly, lenders and other investors will force the organization to furnish reliable information about their operations. According to Deegan and Unerman, the cost of borrowing is likely to go up if organizations do not provide banks and other lending institution with reliable information (57). Proponents of the free-market approach also argue that a number of market-related incentives will prevail on organizations to release accounting information. The first of these market incentives is the market for managers.
According to Belkaoui, managers are motivated to publicize financial reports as it reflects their performance (89). Their performance is important in determining their future remuneration within the firm or elsewhere. Hence, managers provide an optimal amount of information as their performance will be highlighted. Thirdly, managers are likely to highlight the performance of their firms to dissuade outsiders from taking over the organization at low-cost (Belkaoui, 89). Manager focus on maximizing the firm’ s value in order to discourage that intent on taking over the business.
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Solomon, Jill. Does Social and Environmental reporting nurture trust and stakeholder engagement and reduce risk?. No. A2005/2. Cardiff University, Cardiff Business School, Accounting and Finance Section, 2005.
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Woodward, D. and Woodward T. (2001), “The case for a political economy of accounting: A critique of the arguments”, Conference Proceedings, British Accounting Association Conference, Nottingham, March.